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Regulation and Compliance > Federal Regulation > SEC

FINRA Fines Morgan Stanley $1.5M Over Broken Links: Enforcement

By Emily Zulz

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The Financial Industry Regulatory Authority censured and fined Morgan Stanley $1.5 million for failing to deliver prospectuses and investment objective change letters to customers, according to the FINRA Letter of Acceptance, Waiver and Consent.

“This settlement involves unrelated technical issues that temporarily disabled certain prospectus hyperlinks on the MS Online website, and prevented certain client profile confirmation letters from being generated,” a Morgan Stanley spokeswoman said in an email. ”The settlement recognized Morgan Stanley’s extraordinary cooperation in identifying and quickly resolving the prospectus issue, and further recognized that prospectuses were available elsewhere on MS Online, and client profile information continued to be reflected on account statements.”

For several years prior to 2013, Morgan Stanley made required prospectuses available to customers through an online platform if the customer elected to receive paperless transaction confirmations via online delivery.

When an online customer received notification of a transaction confirmation, the customer could log onto the online platform and view the transaction confirmation. In the event the transaction concerned a purchase that required a prospectus to be delivered, the online transaction confirmation would include an easily accessible link to the relevant prospectus.

However, in November 2013, Morgan Stanley deployed a system update to its online platform to change various features unrelated to the “View Prospectus” link. As a result of this update, the link was not placed on the online transaction confirmation between Nov. 8, 2013 and Aug. 14, 2014.

During the nine-month period at issue, the firm failed to deliver to online customers approximately 2.1 million prospectuses via the “View Prospectus” link.

SEC Awards $3.5 Million to Whistleblower

The Securities and Exchange Commission announced that a whistleblower has been awarded approximately $3.5 million for coming forward with information that led to an SEC enforcement action.

The SEC’s whistleblower program has now awarded approximately $135 million to 36 whistleblowers since issuing its first award in 2012. SEC enforcement actions from whistleblower tips have resulted in more than $874 million in financial remedies. IT Specialist Settles Charges of Insider Trading on Hacked Nonpublic Information

The SEC announced insider trading charges against a San Francisco-based information technology specialist who allegedly hacked senior executives at the online travel company Expedia and illegally traded on company secrets.

The SEC alleges that Jonathan Ly, who worked in Expedia’s corporate IT services department, illegally traded in advance of nine company news announcements from 2013 to 2016 and generated nearly $350,000 in profits.

 According to the SEC’s complaint, Ly exploited administrative access privileges designated for IT personnel to remotely hack into computers and email accounts of senior executives and review confidential documents and pre-earnings reports. 

To settle the charges in the SEC’s complaint, which was filed in federal court in Seattle, Ly agreed to pay disgorgement of $348,515.72 plus interest of $27,391.30 for a total of $375,907.02. The settlement is subject to court approval. In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced criminal charges against Ly.

Firm Fined for Selling Unregistered Swaps Involving Pre-IPO Companies

The SEC announced that a San Francisco-based firm agreed to settle charges that it violated federal securities laws by failing to register security-based swaps that were offered and sold online to shareholders in pre-IPO companies.

The SEC instituted an order finding that Equidate Inc. sought to provide liquidity for employees of private, growth-stage companies in the Silicon Valley and others holding restricted shares of their stock, and its platform essentially matched these shareholders with investors seeking to invest in the potential economic return on those shares. 

Without admitting or denying the charges, Equidate agreed to pay an $80,000 penalty. Equidate also stopped offering and selling security-based swaps in December 2015 as a result of the SEC investigation.

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